The long term outlook for well located and well managed Seniors Housing is very bright. For many operators, occupancy and resident rates have grown in 2022. Margins have not followed suit. While occupancy and rate increases have driven revenue higher in recent months, increased labor expenses and other expense inflation have trimmed operating margins significantly. Even raw food costs are still elevated due to supply chain issues among other factors. Nonetheless, there are solid opportunities to those that have good management in place and can weather the storm. Strong consumer demand is evident. In fact revenue in 2023 will reach historically high levels.
On the other hand, there will be some hiccups along the way. Some markets are at risk for overdevelopment. Qualified labor could become even more scarce. Government could decide to become more involved legislatively. There are NO sure things. Recent history has so far proven that the Seniors Housing industry can adapt to all sort of crises, economic as well as epidemiological. So buckle up as it may be a bumpy ride at times.....even with strengthening demographics. All segments will continue with steady transactional volumes but we will see more distressed deals. Especially for those facilities that have struggled to recover post-pandemic and for skilled nursing – particularly in rural areas – that face a myriad of challenges, not the least of which continues to be staffng.
Cap rates for newer, high quality/lower acuity active adult and independent living have risen 25 to 75 basis points in 2022. Lower quality, older assets were impacted more significantly, with Cap rates rising between 100 and 200 basis points on aver- age. Investors are viewing those super high quality assets as a safe haven and are willing to accept a lower return in the short term. It is going to take a while to repair the margins but most still view this industry as a recession resilient, demand driven real estate asset. Thus there is still plenty of demand for senior living even with interest rates posing additional challenges and tougher underwriting the norm. Still Seniors Housing is one real estate investment class that is poised to continue to offer solid yields for years and years to come.
On the other hand, there will be some hiccups along the way. Some markets are at risk for overdevelopment. Qualified labor could become even more scarce. Government could decide to become more involved legislatively. There are NO sure things. Recent history has so far proven that the Seniors Housing industry can adapt to all sort of crises, economic as well as epidemiological. So buckle up as it may be a bumpy ride at times.....even with strengthening demographics. All segments will continue with steady transactional volumes but we will see more distressed deals. Especially for those facilities that have struggled to recover post-pandemic and for skilled nursing – particularly in rural areas – that face a myriad of challenges, not the least of which continues to be staffng.
Cap rates for newer, high quality/lower acuity active adult and independent living have risen 25 to 75 basis points in 2022. Lower quality, older assets were impacted more significantly, with Cap rates rising between 100 and 200 basis points on aver- age. Investors are viewing those super high quality assets as a safe haven and are willing to accept a lower return in the short term. It is going to take a while to repair the margins but most still view this industry as a recession resilient, demand driven real estate asset. Thus there is still plenty of demand for senior living even with interest rates posing additional challenges and tougher underwriting the norm. Still Seniors Housing is one real estate investment class that is poised to continue to offer solid yields for years and years to come.
| HIGHEST PRICE/UNIT INDICATORS
| SALES LEASE-BACK BENEFITS
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NEWS YOU CAN USE
- The average severity per insurance claim has been growing at a double digit rate over the past six years (2016-2021).
- Genworth Financial’s Cost of Care study reports a year end 2021 monthly cost (private one bedroom) of $4,600 in Wisconsin. Nursing Home costs are reported to average between $9,022 (semi-private) and $9,733 (private room).
- Robots are becoming more and more common in handling mundane tasks freeing up staff to focus on relationships with their residents. • Smart toilets help identify potential health issues such as urinary tract infections, dehydration, bleeding and infectious diseases in the privacy of your resident’s bathroom.
- During the first 9 months of 2022, union representation petitions led at the NLRB have increased an alarming 56%!
- Sign-on bonuses of $1,000 or more for direct care workers and $2,500-$5,000 bonuses for nursing staff are becoming increasingly common. • The University of Chicago NORC researchers believe that by 2033, more than 11,000,000 seniors 75 older may not be able to afford assisted care.
- Rising operating expenses now surpass staffing challenges as the most frequent response to “the biggest challenge facing my organization today.”
Spotlight on Senior Care M&A - Fourth Edition / www.seniorcareadvisor.com
DEVELOPMENT TRENDS
One type of product gaining in popularity with developers are Pod Complexes, where you have a central hub that delivers essential community services (dining room, recreation hall, etc.) often with four spokes in the form of clusters of pods that cover the entire spectrum of care – independent living, assisted living, memory care and full nursing care....allowing residents to age in place. Surrounding the pods sometimes include single family homes that are available to the adult children of the residents allowing for meaningful proximity and significant interaction. Developers typically look for placement of these pods near clinics and/or hospitals.
In addition, continue to look for developers really pushing the envelope on luxury. We will continue to see new designs, an abundance of technology offerings, higher levels of hospitality services and health care in active adult and assisted living facilities especially.
In addition, continue to look for developers really pushing the envelope on luxury. We will continue to see new designs, an abundance of technology offerings, higher levels of hospitality services and health care in active adult and assisted living facilities especially.
NOTABLE QUOTES
“Inflation is taxation without legislation.” ---Milton Friedman
“Inflation is taxation without legislation.” ---Milton Friedman
Specializing in Seniors Housing since 1992
Confidentiality assured approach
Commercial Association of Realtors award winning broker
PLEASE CALL US FOR ALL YOUR SENIORS HOUSING BROKERAGE & CONSULTING NEEDS
414.416.3001
Confidentiality assured approach
Commercial Association of Realtors award winning broker
PLEASE CALL US FOR ALL YOUR SENIORS HOUSING BROKERAGE & CONSULTING NEEDS
414.416.3001
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